FOR weeks now, the tech world has been entranced by the unravelling saga of China’s telecommunications equipment behemoth Huawei Technologies. On May 15, President Donald Trump barred US firms from using telecoms equipment made by firms posing a “risk to national security”. The US Commerce Department blacklisted Huawei on its “Entity List”, effectively restricting US companies from providing components, technology or services to the Chinese tech champion.

The fallout from this ban is likely to be profound. Forty-eight per cent of Huawei’s revenues come from smartphones sales and 52% from telecommunications equipment. Huawei’s smartphone handsets rely on mobile microprocessors, the brains of mobile phones, made by UK-based ARM Holdings, a subsidiary of Japan’s SoftBank Group, as well as Google’s Android operating system. A permanent ban on ARM microprocessors or Google’s Android will effectively relegate Huawei to the trash heap of history.

Ostensibly, the move against Huawei is the Trump administration’s attempt to stop China from stealing US intellectual property, and overturn “unreasonable technology transfer policies” that emanate from Beijing’s laws, which require foreign businesses to form joint ventures with local Chinese companies, including some type of technology transfer, thereby exposing foreign businesses to theft. Yet, any attempt by the US to contain China by crushing its most visible home-grown champion is likely to lead to two separate tech networks: a US-dominated Western one and a Chinese one.

In the burgeoning digital economy, how many Huawei smartphones are used by Americans is really irrelevant. What is relevant is the flow of information that is routed through Huawei’s networking gear, telecom equipment and switches, wherever they might be.

Clearly, the US will be loath to take any data from what are contaminated networks that use Huawei or indeed any other Chinese equipment if the simmering Tech Cold War takes a turn for the worse. In Europe, some telecom regulators have barred Huawei components from their networks’ “core”, which they consider sensitive because it contains the routers and switches that handle massive volumes of data traffic, but have allowed Huawei in a portion of the “edge”, which comprises less sensitive radio-frequency chips that carry signals to the “core” from phones and other devices.

To be sure, the US has long been concerned that Huawei, ZTE Corp and other Chinese tech hardware makers may be nothing more than modern-day Trojan horses of Beijing’s intelligence apparatus. For his part, Huawei’s founder Ren Zhengfei has repeatedly denied that his company builds “back doors” in its products that can be used to illegally extract data for intelligence purposes. Huawei, he told reporters recently, would never help China spy on other countries. Yet, Huawei must comply with a Chinese law, enacted in 2017, that requires all citizens and companies to help Beijing’s security agencies in carrying out their intelligence work.

As its tech war with China gets red hot, what is likely to be more worrying for Washington is the flow of data routed through compromised networks not around the world. In the US, while Huawei has long been shut out from the main telco networks, its cheap equipment has been used in some rural networks.

High cost of tech war

Over the years, Singapore and Malaysian telcos have deployed networking gear from a multitude of vendors, including Swedish firm Ericsson, Finland’s Nokia and Huawei, through which they route their data. Here is the problem: In a Tech Cold War, there will be few telcos around the world, including those in Southeast Asia, that would be able to say that none of their data is routed through a Huawei or Chinese-made equipment.

The problem in the region is not that, if the tech war gets bad, telcos would still prefer to buy cheap Huawei equipment. The problem is that even if they stopped buying new Chinese equipment, their networks would still be reliant on Huawei gear bought years ago. Replacing that legacy equipment would take years and cost Asian telcos tens of billions of US dollars in capital expenditure.

Why does it matter that Asian telcos continue to deploy previously purchased Chinese equipment? Data is carried over a network and routed through an array of equipment, including routers and switches — some old, some new, some made in Europe, others made in South Korea, China and the US. Even if only one router or switch in that vast network is compromised, all the data routed through it is comprised.

The US and Southeast Asian nations have long had close military and security ties. Under the US-Singapore Strategic Framework Agreement, some US Navy littoral combat ships are rotationally deployed to Changi Naval Base. The US also has a security relationship with Malaysia, though it has never been as close as its ties with Singapore. A China-built network in Southeast Asia, whether it is that of M1 in Singapore or Celcom in Malaysia, to access US communications could be problematic.

It is not just about Huawei gear deployed by M1, StarHub, Celcom or one of its Axia­ta Group affiliates or Singapore Telecommu­nications’ cellular affiliates in the region, it is about the flow of data through their networks that may have already been compromised or can be easily hacked.

Here is what you need to know about the Huawei fallout. Any 5G advantage that the Chinese telecom giant currently has will disappear in thin air soon after the ban becomes permanent. For one thing, Huawei does not have its own 5G baseband chips like Qualcomm. Moreover, Huawei depends on US semiconductors and optical components for all of their telecom equipment and networking gear.

A broad-ranging ban will cripple Huawei’s effort to source components from South Korea, Japan, Southeast Asia and even Taiwan, irrespective of how much component inventory it may have built up. It will also prevent Huawei from receiving critical software and security updates, making its gear a piece of junk.

Take, for example, 5G infrastructure. Cellular base stations need power management chips, processors and field-programmable gate array chips, which are designed to be configured by customers, such as telcos, after they have been manufactured as opposed to being pre-programmed. Huawei, ZTE and other Chinese companies depend on the components and intellectual property (IP) of US, Taiwanese and Korean suppliers such as Broadcom, Qualcomm, Analog Devices, Texas Instruments, TSMC and Samsung Electronics for both 5G base stations and handsets.

It would take years before Huawei or any other Chinese company can make many of those key components in China. Indeed, without US, Japanese, Korean and Taiwanese IP, Huawei could not have made a single 4G handset or base station, let alone 5G ones. “Building a full 5G product stack without access to US suppliers would be impossible,” says Pierre Ferragu, telecom infrastructure ana­lyst for NewStreet Research in New York.

It’s the software, stupid

Access to components and technology is just one of Huawei’s many problems. It also has to find an alternative to Google’s Android operating system, a near-impossible task. Huawei has said it is working on a fork of the open-source Android, which could be ready in months. An open-source software is licensed to include the source code and the ability to fork or change it. In 2010, Alibaba Group Holding forked Android to build its own mobile operating system, AliOS. Beijing wanted a local operating system to prevent citizens from downloading foreign-made apps on their phones. The problem with AliOS was that it was seen as an obstacle to China’s becoming the world’s largest handset maker.

If Lenovo Group, which makes Motorola phones, Xiaomi Corp, Huawei and ZTE were to make smartphones for a global audience, they would need to make them available with Android and not with some forked version of it because most apps written for Android just will not work with the Chinese version.

No one outside China would want a phone that was unable to download popu­lar apps as well as Google Maps, Waze, YouTube or Gmail. Indeed, even the Chinese would not want a Huawei phone with a forked operating system and no access to Android’s security updates. Huawei has a 29% share of China’s smartphone market. That means 71% of Chinese do not use a Huawei phone. If Huawei opted for a forked version whereas Xiaomi, Oppo, Vivo and Lenovo went with the official Android, app developers in China would have to make apps for two separate systems. Who would they make the apps for first? The ope­rating system used by most Chinese, of course.

Remember when Microsoft tried to compete with iOS and Android? It spent billions of dollars in subsidies on app developers, trying to persuade them to create Windows versions of the apps they made for iOS and Android. Developers could not be bothered, forcing Microsoft’s Windows mobile operating system to shut down a few years ago.

By isolating Huawei, the Trump Administration is laying the groundwork for the eventual balkanisation of tech. In some ways, it has long been China versus the rest of the world in digital technology. Whether it is e-commerce, social media, search advertising or digital payments, there are global giants such as Amazon.com, Facebook, Google and PayPal and their Chinese counterparts such as Alibaba, Baidu, Weibo Corp and AliPay.

The Huawei ban formalises balkanisation or incompatible products and services for China and the rest of the world. Different products for different markets will create even more divergence in technology. That in turn will not only stifle innovation but make tech products more expensive, see the emergence of two separate supply chains — one for components destined for the Chinese market and the other for the rest of the world as well as distinct technolo­gies and separate ecosystems.

Digital giants have been able to take a lightning-fast path to building massively valuable companies because tech was a global monolith. Now, investors need to take into account a slower pace of innovation, different supply chains and separate ecosystems as they re-evaluate their exposure to global tech.